Any Rental Will Do

maxresdefault

On-line bookings comes with certain risks. Be smart, ask questions before booking rentals into your vacation home.

 

The vacation rental industry has certainly changed … especially in the past few years.  I’m sure this is true everywhere but here in the desert it went from then, to now … almost overnight.

Back in the 80s I managed the vacation rental side of a small, successful real estate company that specialized in two country clubs; one in Rancho Mirage, the other in Palm Desert.  Back then, vacation rental properties were scarce and not well known.   Prospective tenants paid a deposit and were put on a list based on three choices; the preferred country club, a two or three bedroom condo and an A, B or C (C being “luxury”), price point.  The booking process went like this … during the summer we would gather the reservation requests.  A seasonal calendar was mailed to the property owners with a request for them to mark any “owner use” dates and return the calendar by the end of September.  Once we received the marked calendars and the dates recorded, we (usually I), would go into a private conference room, and for several days, work reservations into the properties one by one … like fitting pieces into a puzzle.  The goal was to fit in as many requests as possible, based on the tenants three choices, with a minimum of unoccupied time between reservations.  The property calendars we used looked much like accounting ledgers and were computer printed on dot-matrix sheets that were as much as ten feet in length in order to accommodate all the months of our rental season.   When working with sixty to seventy properties and about two hundred requests of varying requirements, you can just imagine what a long process this was.

Also remember that back in the 80s, computers were not in most homes.  We used a computerized reservation system, but the entire booking process was done over the phone and through the mail.  There were no websites to look at pictures and if a client wanted to see photos of a property, we had to mail them actual 3X5 photos and request that they return the pictures.  It was not until the early 2000s that websites and property listings started to appear, after personal home computers became common.

So … this long description of what vacation rentals were like leads me to the simple point of today’s post:  once upon a time, tenants were simply happy find any available property!  Vacation rentals were just not plentiful.

This is no longer true.  Since the late 90s the industry has grown and after 2008 it has doubled, then quadrupled, and then again and again.  What used to be an “owner’s market” is now definitely swung in the opposite direction.  In my view, there are three major contributors that have driven the growth and changes in the vacation rental industry over the past fifteen to twenty years … turning the industry into a “renters” market.

  • The computer
  • An abundance of vacation rental properties
  • The owner managed vacation rental

The computer has taken vacation rentals global.  Once, vacation rental companies had to identify their potential “key” markets and pay for newspaper advertising … at best this was a costly, hit or miss proposition in light their potential world-wide cliental.  Now, companies vie for position in search engines and among ever growing competition.   There are a great number of start-up companies that promise more rental income and lower management rates but at the trade-off of poor property and occupant oversight and property damage.  Most of these start-up “tech” companies are located far from the area, promote on-line booking and rely on cleaning services as their eyes and ears.   As owner of Vacation Rentals of the Desert, a traditional vacation rental management company, it is hard for me to watch these companies gain ground, but as they grow, so does my business.   It doesn’t take home owners long to discover the importance of local, responsible oversight and management and personal tenant screening.  We hear a lot of horror stories.

Side Story:  Just yesterday we received a call from a prospective tenant inquiring about a private home with a pool.  He wanted to pay $500 for just one night so he and his friends could throw a 21st birthday party.  Would a directly an on-line booking have caught this one?  It’s doubtful.  I have personally seen the results of these kinds of parties … heck, years ago, I went to these kinds of parties.  $500 might not even touch the clean-up and repairs, much less the fines for over-occupancy without an “event permit.”  Did you know that many cities require a permit for parties at vacation rental properties and that significant fines can be levied and/or the loss of rental privileges can come as the result of not having the correct permits?  Check your local city ordinance.

As recently as five-ten years ago, when talking to property owners interested in listing their “dated” vacation home, I would explain that there was a price point for all tenants.  If the property was nice, neat, clean and provided all basic amenities, it would appeal to those with a limited budget.  This is no longer true, which I will explain further below under owner managed vacation rentals.   If a property is dated, it will most likely be passed up unless it is the very last possibility … in which case the tenant will complain during their entire stay.

The abundance of vacation rental properties has come as the result of several factors but most significantly from the recession starting in 2008.  In our area, as in many “desirable” locations throughout the United States, there are many second homes that were used only by the owners and their immediate family.  In the midst of the recession, many owners struggled to keep their second home and since the bottom had dropped completely out of sales, vacation rentals became a logical solution and a means to off-set some of their carrying costs.  Here in the desert, the number of vacation rental homes grew rapidly.  Fortunately many of our tenants were Canadian which did not get hit as heavily by the recession.  So the “rental” side, despite our economy, still brought in a brisk business.  With property values at rock-bottom and the Canadian dollar high, it was not long before our northern neighbors started buying homes and using the vacation rental income to off-set some a good chunk of the expenses supporting an out-of-country property.    I cannot tell you how many tenants we lost when they bought their own vacation home … but our inventory grew as these very same tenants listed their newly purchased homes on our rental program.  There were also “investors” who came in, flipped run-down properties and listed them as vacation rentals.   In addition, industrious couples of all ages, purchased properties in hopes of enjoying and self-managing the home as a vacation rental.  All the above were lucrative investments and all helped to grow the local vacation rental industry, but as the number of properties expanded, competition grew and “the bar” was set higher.

 When you’re the only restaurant in town, your tables are always full … add fifty more restaurants and your chef had better be amazing!

The owner managed vacation rental market grew with the above … wide-spread computer access and taking advantage of depressed home sales.  VRBO (Vacation Rentals by Owners) launched twenty years ago in 1995, but it was not until the early 2000’s that vacation management companies and the general public, started to take notice.  The U.S. recession had a major influence in growing this VRBO and many on-line listing sites such as FlipKey, soon followed.  With one annual fee, a home owner could list and manage their property locally or from a distance.  This had two great owner appeals … one, it eliminated the management fee from a professional vacation rental company and two, certain owners were attracted to the hands-on interaction and pampering of their tenants … it was looked at as a fun second or retirement job … kind of like managing a bed and breakfast.  But the unfortunate truth about owner managed properties are that they generally have a negative impact on the local vacation rental industry and this fact is almost completely unknown by the owners doing the damage.  It comes in various forms but an example would be a home owner that lists his property as “for sale by owner,” then prices it way below the neighborhood comps.  Inexperienced new property owners who do not know the vacation rental market may in the long run do themselves and the surrounding vacation rental properties, a disservice by underpricing their vacation rental and causing a “race to the bottom.”  Professional management companies look at area “comps,” and even though they do not typically get together to set rental rates, they do look at market norms and head typically in the “up” direction instead of driving rates down.  Over the past few years, I have rates between owner managed and professionally managed properties, run all over the place with ridiculous variances.  A perfect and true example is a three bedroom, completely updated, newly furnished, perfectly located property that I would have listed at $4,800 per month, the owner was renting at $2,500 per month.  Lucky tenant … but now it makes it more difficult for my $4,800 property and all the other properties listed at “market” price, to compete.  Bottom line is that this owner is potentially driving the market down instead of in the other direction.  Now this may not have as much of an impact in some areas, but in a highly sought after country club that tenants seek out year after year, go with friends, associate and meet at the pools, dinners, etc. … this has a huge impact.  Those tenants who have rented directly from owners will slam their phones down in our ears, when we quote them our rates.

There has also been a huge fall-out from owner management rentals who usually are run by absentee owners who are entirely focused on their bottom line and not on the behavior of their tenants or “justifiable” complaints from their neighbors.  These are the owners that disregard the city ordinance regulations and rent their properties as party homes or a two bedroom condo to eight people.  These “problem” properties fall into the “one bad apple” scenario.  This is one of the major contributing factors to stiff city ordinances, negative press on vacation rentals and the disgruntled and very vocal neighbors that show up at every city council meeting.  It has added to owners hesitating to rent out their properties and renters hesitating to stay in particular areas.  Ultimately it reflects on all vacation rentals, whether owner managed or professionally managed and hopefully will not end in the demise of the entire industry.

So … things have changed a lot and I guess that’s a good thing.  We all have to make adjustments to these changes as they arise.  Bottom line is this … tenants no longer are happy to with just anything available.  They want the best, with all the bells and whistles and at the best price.  There is a lot of competition out there and if you are not willing to provide “the best,” someone else will.  If you think about it … isn’t that exactly what you look for in any purchase you make?

3af380b7437c8dde1d2f6def5fa373Logo Vector Final 11-24-09

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: